Piggybacking: When should the credit free ride end?

The practice gives young people a credit head start; end it carefully

By Emma Johnson

College students who piggybacked on their parents' credit cards will continue to enjoy good credit once they're removed from the card -- if the separation is slow and careful, credit experts say.

Lucky for the authorized user, the gift of a strong credit score keeps on giving after the piggybacking arrangement ceases -- assuming the newly liberated young adult keeps up sound credit practices.

"Everything from the previous credit score gets carried over. There is no reset," says Ken Clark, certified financial planner and author of "Complete Idiot's Guide to Getting Out of Debt." "When a potential creditor looks at your credit history, it will show that in the past 12 to 24 months, payments on your Visa card were paid in a timely manner. That you have been taken off that Visa card doesn't erase that fact."

The popular practice of "piggybacking" allows credit cardholders with excellent credit to extend the use of their card to an authorized user, who can then build a credit history or repair a poor one, even if they never actually use the cards on which the history is based.

How to end the piggyback ride
Removing an authorized user from your credit card is most easily done via a short phone call to customer service, though many companies now encourage cardholders to make such changes online. Clark said the change should take place immediately, though it could take as long as 48 hours.

Clark advises people not to rely entirely on piggybacking to build a credit profile, as each credit bureau measures the practice differently. Further, the most important factor in a person's ability to obtain a line of credit is income history, Clark said. As such, parents may consider waiting 12 months before removing their child's name from a card, allowing the authorized user to build their own income and credit history. Clark also suggests that recent graduates stick with a single employer for a year or two at the start of their career. "If you want to borrow money to a buy car but don't have stable monthly income, a lender is not going to be interested, even if you have the highest credit score in the world," Clark says.

Preparing for life after 'piggybacking'

Consider waiting 12 months or more before ending the piggybacking arrangement to let the young person do the following:

Establish their own credit history: It can be helpful for the student to make some purchases and acquire their own credit cards to begin having some credit history they can call their own.

Get steady employment: Experts say it's important to get established in your career. If you've got great credit, but don't have stable income, it still will be hard for you to get a loan.

For years, piggybacking has allowed parents to help their adult children enter the working world with the benefit of a solid credit score. The practice, however, has become controversial in recent years since third-party companies learned to profit by charging hundreds of dollars to connect authorized users with clients with high credit scores. Last year, this business was cited as the reason credit bureaus planned to phase out piggybacking. Then, in July, FICO credit score creator Fair Isaac said that piggybacking will continue to be available, though a new version of the popular credit scoring system will be rolling out soon, although it's unclear when. The new version of FICO will be designed to detect and disallow piggybacking between strangers, but will allow familial piggybacking to continue and count positively, Fair Isaac announced.

This is good news for people such as Andrea Ragni, 23, who last year was removed as an authorized user from her parent's credit card upon her June 2007 graduation from Santa Clara University in the San Francisco Bay Area suburbs. Ragni didn't appreciate the value of a good credit score until several potential landlords informed her that her 690 score made her an attractive tenant in her San Francisco apartment search. Her two roommates also had very high credit scores, thanks to piggybacking on their parents' cards throughout college.

"We all had jobs, but we didn't have a credit history behind us," says the public relations account executive. "If it weren't for piggybacking, we probably would not be living in as nice of an apartment as we do."

Recent graduate Owen Glubiak is thankful for his opportunity to piggyback on his parents' card -- even though he doesn't know what his credit score is. He was able to use the American Express card to cancel a flight to Ecuador when he got sick and has avoided the fate of a college roommate who had to invest a deposit with the gas company before the utility could be turned on. "That could have been avoided had he had a credit card," says Glubiak, who now works in sales for an energy company in Burlington, Vt.

Glubiak said the one drawback of his family's credit card arrangement was that he found it difficult to track his spending and budget for the future since his father debited the student's share of expenses from Glubiak's bank account. "I wish I had more access to the online statements," he says. "My dad had all the passwords."

It would be pretty safe to assume that Glubiak's credit score is strong. After all, his dad is William Glubiak, CEO of Cedar Brook Financial Partners in Cleveland. William believes the system taught his son financial responsibility -- which is entirely now in hands of his adult child. "Taking him off the credit card was easy," William says. "I don't really care if he has good credit -- though he probably does. Now it is sink or swim. If he decides not to pay his bills, that is just part of growing up. But that hasn't happened."

Published: November 4, 2008

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